Terra Firma, which has made some "stunning deals" in the past, faces an uncertain future after losing its court battle with Citigroup over the 2007 acquisition of British recording company EMI Group, according to investors.

Guy Hands arrives at Manhattan Federal Court in New York, Reuters

Terra Firma’s unsuccessful attempt to claim damages from Citigroup over its role in the purchase of music label EMI Group in 2007 leaves the buyout giant in a uncertain position, according to investors.

One investor in the fund said: “All round it has been one of these things you wish you never invested in.” He added he was sceptical about investing again with Terra Firma. He said: “It is pretty hard to believe that Terra Firma can raise another fund as there has been a lot of damage done to investor confidence. An awful lot depends on how the portfolio he has left performs. If they can produce good performance from some investments especially those in both funds, maybe some will give them the benefit of the doubt.”

Terra Firma said in a statement: “We are disappointed that the jury found that we did not prove that we relied on misrepresentations from Citi which caused a loss to our investors."

It added: “We believe that this was an important action to bring and that we had a responsibility to our investors to bring it. We are hugely grateful for their support throughout this process. We will continue to focus on achieving the right result for them and for EMI whilst continuing to support the successful development of our other nine businesses."

He added: ”EMI itself will continue to build on its track record of the last three years, during which time it has improved its market position, achieved tremendous success with its new and existing artists, and produced remarkable growth in cash profits.”

Terra Firma has more than €2bn of uninvested capital remaining and has nine other investments to its name.

Guy Hands and Terra Firma had accused Citibank, which financed the deal at the top of the credit boom in 2007, of duping him to pay over the odds for the music label. Testifying in New York last month, Guy Hands said that Terra Firma would never have bid for EMI in 2007 had it not been told by Citigroup banker David Wormsley, his “closest business colleague”, that rival US group Cerberus was also bidding for the business.

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But a jury ruled today that Citigroup did not fool a British private equity firm into buying music company EMI in 2007 at an inflated price.

The deal had caused anxiety at some investors. A former investor in Terra Firma’s latest fund said they had sold their stake in the fund at a big discount earlier this year after Terra Firma injected more money into EMI, not long after the firm had told investors it wouldn’t put more money into the struggling music label. The investor said that because such a large portion of the fund is invested in EMI “you are basically taking a bet on the outcome of the court case. We were worried about the undrawn commitment to the fund and where that money was going to go in the future.” Terra Firma declined to comment on its future.

However, another investor in Terra Firma’s latest fund said they hadn’t considered selling but would mull over the verdict and selling its stake “is an option that has to be on the table." One lawyer said that the firm had done some “stunning deals” in the past and because of this it was likely that investors would keep faith with the firm and support its next fundraising effort.

One fund of fund investor in Terra Firma’s current fund said: “There are other good deals in the fund and it has a chance of making good returns but this (verdict) obviously makes it more difficult.” The investor said that his firm had sold a small part of its stake in Terra Firma’s latest fund, but was preventing from selling the rest of the fund by a contractual arrangement which stipulates a minimum amount has to be invested in private equity buyout funds and the firm has reached that limit.

Hands had alleged that Wormsley, whom he “trusted”, told him on at least two occasions that Cerberus had bid 262 pence per share for EMI. Terra Firma acquired EMI for 265 pence for share, a deal that was valued at the time around €4.5bn.

Guy Hands had also been accused of suing the group to protect his fortune, a large part of which is allegedly tied up in the latest fund. Theodore V Wells, the US bank’ principal attorney, said between “60% to 70%” of Hands’ wealth “is dependent on how EMI does.” Wells quoted the transcript of a speech the financier gave to EMI staff in September 2007.

One adviser, a former lawyer, said he supported Hands and believed the verdict was the wrong one. Making an analogy with buying a house, he said: “If your estate agent tells you that there another bidder has made an offer above yours, if you want the house you will outbid them. That’s how an auction process works, but only if the agent hasn’t lied to extract a higher price. If there is no firm bid, you have every right to sue."

The court judgement is a major setback, but Guy Hands is not stranger to difficult deals.

One senior private equity figure said “Guy Hands has been written off before after Meridien” but had come back to make good deals. He said that EMI is in “an infinitely better position than it was before Terra Firma invested.”

In 2001, while still at Japanese bank Nomura, Hands paid £1.9bn for upmarket hotel chain Le Meridien, which included The Grosvenor House and The Waldorf in central London. The deal ran into financial troubles, prompting headlines in the national press such as “Has Guy Hands lost his Midas Touch?” Terra Firma exited in 2006 after a complex restructuring in which the investment arm of hotel chain Starwood and failed US bank Lehman Brothers took on over $1bn of Le Meridien's outstanding debt, before the Le Meridien brand was acquired by Starwood Hotels.